Crisil Research has said in a report that some HAM (hybrid annuity model) road projects are still awaiting the date of starting of the project, due to delays in land acquisition or regulatory concerns. It analysed 40 such projects stretching over 1,913km, and puts forth some concerns that could jeopardize the pace of execution.

This is not good news as it comes when investor confidence in the sector had just begun to marginally improve.

NSE’s Nifty Infrastructure index has risen 9% since October, after falling 33% during the first nine months of 2018. In the past two months, it has outperformed the broader markets, which have fallen. Companies reported better-than-expected results for the September quarter.

The low base of the year-ago period, when firms were battling legacy issues and new compliance and accounting norms, also helped.

A report by HDFC Securities Ltd shows that 12 listed firms clocked an average 40% year-on-year revenue growth. Gains are starting to trickle down for investors by way of margin and profit growth, after firms reined in costs.

While the pace of order inflows in the June and September quarters was subdued, the second half of FY19 is likely to see higher order flows in roads, and power transmission and distribution.

On the funding front, private equity participation could partly alleviate some companies’ interest cost burden, while some firms may gain from asset monetization.

That said, high crude oil prices pose a risk to earnings since crude oil derivatives account for about 10-15% of the cost of construction, especially in road projects. Hardening interest rates may have an adverse 100-150 basis point impact on profits as well. Besides, HAM project viability needs to be proven in the coming quarters. The state of EPC (engineering, procurement construction) projects is a tad better. On the whole, Crisil’s report says that the pace of execution of projects may slow down to 9.9-10.4km from 11.8km, which was the earlier estimate.

While these risks remain, the sliver lining is that valuations have corrected significantly in the past one year. For companies whose overall balance-sheet health is improving and order book is growing, investors seem to be willing to invest, which is what the marginal rise in some of these stocks suggests.